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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Policy Modeling, Volume 35, Issue 4, July–August 2013, Pages 638–651
Using FADN data, we analyse the development of income inequality in Swiss agriculture for the valley, hill and mountain regions over the period 1990–2009. While household income inequality remained stable, farm income inequality increased during this period. Estimated Gini elasticities show that household income inequality is reduced by off-farm income and direct payments but is increased by market income. Both, the introduction of area-based direct payments in 1992 and the abandonment of farm household payments in 1999 have regional different effects. Agricultural policy should opt for measures that comply with regional requirements, as current direct payments cannot avoid that income from farming is drifting further apart.
One of the main objectives of agricultural policy is to maintain or even enhance the income of farm households. Different policy measures are available to reach this goal, including market support and farm-level direct payments. These measures have substantial effects on the development of agricultural production, structures, prices, and finally the farms’ income levels (e.g. Fragoso et al., 2011, Miljokovic, 2004, Miljokovic et al., 2008, Miller, 1991 and Mishra et al., 2009). They may furthermore affect the income distribution within the farm population (i.e. income inequality). In Switzerland, market support has been reduced since the early 1990s while direct payments became much more important over time. Currently, Swiss farmers are subsidized with direct payments amounting to around 2.5 billion Swiss Francs per year. Most direct payments within Swiss agricultural policy have (at least partially) the objective of redistributing income towards the neediest parts of the farming population (Mann, 2005). In Switzerland, particularly farmers in the hill and mountain regions are handicapped by adverse production conditions and face low incomes. Thus, these farmers were always the main recipients of direct farm-level support. However, due to agricultural policy reforms the kind of support for farmers changed over time (see El Benni & Lehmann, 2010, for details). In general, the inequality (e.g. of incomes) between individuals is of highest societal and political importance (e.g. Aristei and Perugini, 2010, Lee, 2006, Park, 2001 and Taylor, 1992). This is also the case for agriculture, especially as the proportion of direct payments on farm income has increased considerably over time (e.g. Keeney, 2000, Mishra et al., 2009, Schmid et al., 2006 and von Witzke and Noleppa, 2007). Even though the responsibility of policy makers for the distribution of income among farmers has increased the distributive effects of changing income composition due to agricultural policy reforms has received little attention so far. Based on this background, the goal of this paper is to measure the effect of Swiss agricultural policy reforms on the distribution of farm household income. More specifically, these effects are estimated within three different agricultural production regions of Switzerland (the valley, the hill and the mountain regions) that are characterized by different natural production constraints. Hence, this paper expands the scope of the paper of El Benni, Mann, and Lehmann (2011) that analysed income inequality in Swiss agriculture at large. The here presented investigation of (and testing for) differences in regional developments of income inequality is motivated by the fact that Swiss agricultural policy often has regionally specific goals. Thus, also the outcome of the chosen policy measures has to be analysed regionally explicitly. In our analysis, we use FADN data from 1990 to 2009 to measure the distributional effects of changing agricultural policies on total household income. Applying the Gini decomposition approach of Lerman and Yitzhaki (1985), marginal effects of different income sources on the income distribution are calculated for each region. Nonparametric bootstrap is used to assess statistical inference on the estimated coefficients of income inequality and marginal effects as well as to test for differences between regions. The here presented results can be used by policy makers to examine the distributional effects of changing agricultural policies and to adjust support mechanisms in the specific regions. The remainder of this paper is structured as follows. In Section 2, the main developments of Swiss agricultural policy between 1990 and 2009 are described. Subsequently, the methods and data used in this paper are presented in Sections 3 and 4. In Section 5, the effects of agricultural policy reforms on the income distribution of households located in the valley, hill, and mountain regions are explored. Finally, Section 6 summarises the results and concludes with policy recommendations.
نتیجه گیری انگلیسی
In this paper we analyse the development of income inequality in Swiss agriculture for the period 1990–2009 using FADN data from farmers located in the valley, hill and mountain regions in Switzerland. A particular focus of our analysis is the influence of two main reforms in Swiss agricultural policy that were enforced within the considered period. With the first agricultural policy reform in 1992, area-based direct payments were introduced. With the second reform in 1999, these payments were based on a cross-compliance approach, and farm household payments – given to farmers producing under adverse production conditions in the hill and mountain regions – were abandoned. Our results show that the first reform step led to decreases in mean household income levels because of the reductions in market supports. Compared to farmers producing under adverse production conditions, valley farmers faced the strongest income losses as prices for marketable goods decreased considerably. Even if income composition strongly changed between 1990 and 2009, the distribution of household income remained rather stable over time for all three production regions considered. Hence, strong increases in farm-level support (i.e. direct payments) could compensate farmers for foregone market profits without affecting the distribution of household income significantly. However, our study shows a strong increase in farm income inequality within these regions in the last two decades, which can be attributed to an increasing gap between farmers that earn money on the market and those losing money by agricultural production. Currently, especially farmers producing under adverse production conditions are strongly dependent on farm-level governmental support which even exceeds total farm income. These farmers are not able to decrease costs in such a way that positive revenues can be obtained by the production of marketable goods. This questions the effectiveness of governmental support with regard to income goals of agricultural policy, both, in terms of income level and income equity. While an increase in direct payments would decrease household income inequality, farm-level payments cannot avoid that income from farming is drifting further apart. It is furthermore doubtful how long tax-payers are willing to pay for a capital absorbing sector. Due to decreasing farm incomes farmers are required to increase off-farm income to maintain household income levels. Our results show that while farmers located in the valley and hill regions were able to do so, mountain farmers could not increase income from off-farm employment to a similar extent. However, increasing off-farm income would reduce income inequalities among farmers within each of the regions considered. Policy makers should therefore increase off-farm employment opportunities, especially in the mountain regions, in order to ensure agricultural production, an appropriate standard of living and a more equal distribution of income between households. There are some lessons that can be learned from past agricultural policy changes in Swiss agriculture and its effects in regions with different production conditions. In an environment with high market prices (such as the pre-reform period in Switzerland) farm-level governmental support can be well targeted to low income producers, e.g. by supporting farmers producing under adverse production conditions that are not able to earn an appropriate income from marketable goods. However, with strong decreases in market prices, governmental support must be increased for all farmers. In Switzerland, this was reached by introducing area-based direct payments without regional restrictions in a first reform step in 1992. The Swiss example shows, that such payments can be valuable instruments to maintain farm and therefore also household income. While the goal to compensate farmers for foregone market profits can be met by such policies, our analysis reveals two limitations of such systems. At first, area-based direct payments alone are not sufficient to maintain farm income. In our analysis, this was shown by regionally different effects of the two major policy steps in Swiss agriculture. With the first reform, direct payments became wide spread within the farm population and therefore compensated especially those farmers with high market losses, i.e. farmers producing under favourable production conditions in the valley regions. The reform had much less effect on the distribution of governmental support in the hill and mountain regions. This is due in large part to lower market losses these farmers faced and the additional support through farm household payments for farmers producing under adverse production conditions. With the second agricultural policy reform in 1999, the area-based direct payments were obliged to environmental-friendly production standards (i.e. cross compliance obligations) and the farm household payments were abandoned. In contrast to the first reform steps in 1992, these changes also affected farmers in the hill and mountain regions and direct payments became less equally distributed within these regions. Hence, some farmers were faced with heavy support reductions, while others could maintain levels of governmental support. Together with decreasing market prices, this widened the income gap between farmers, i.e. increased farm income inequality. Even if the effect of one single policy measure cannot be separated by such kind of analysis, our results suggest that farm household payments are a better instrument than area-based direct payments to redistribute income towards the neediest parts of the farming population. Clearly stated income goals could be followed by targeted measures. Second, small farm operations are in general those with lower incomes (e.g. von Witzke & Noleppa, 2007), but also those that receive the lowest amount of area-based direct payments. In Switzerland, farmers with on average higher household income levels tend to be most supported by direct payments. Hence, to a certain extent, the distributive effects of governmental support are similar between market support and direct payment support. Also under market price support schemes, larger and more productive farmers (e.g. in the valley regions) were advantages as they usually produce higher output volumes. Of course, restrictions on maximum farm size, income and assets for the reception of direct payments (as it is common in Swiss agricultural policy) are expected to lower their distributive effects compared to market support measures. However, our results underline that they cannot be eliminated. Therefore, exclusively relying on area-based direct payments can increase income gaps between farmers, not only between those with smaller and those with bigger farms, but also between those facing favourable and those facing unfavourable production conditions. Agricultural policy should consider this effect on income distributions if opting for either measure of farm support. Clear income goals should be stated and instruments targeted to these goals must be implemented. Regional differences such as natural production conditions and off-farm employment opportunities must thereby be taken into account. A challenge for agricultural policy is furthermore that direct payments based on farm size reduce the incentives to release agricultural land, especially if off-farm employment is not an alternative. The mobility of agricultural land in Switzerland is therefore limited (El Benni & Lehmann, 2010) and the number of farmers with negative market incomes is likely to increase with further decreasing market prices. This may lead to an increase in farm income inequality. While there are several other objectives of agricultural policy beyond income, it should be kept in mind, that economic reasons are the main driving forces for structural change. Hence, the challenge for agricultural policy is to find appropriate measures that dissolve, at a regional level, the trade-off between the demand for compensation payments and competitiveness. An increase in the competitiveness of Swiss farmers would reduce the dependence on direct payments and therefore also the effect of farm-level governmental support on income distribution.